A: Investors acting in concert against the same developer are very effective. There are limitations, however, as to in what capacity they can group together.
For example, for the purposes of bringing a legal action in a U.A.E. court, such collective actions are not allowed. In other words, class action suits are not within the purview of the U.A.E. legal system, as far as courts are concerned. Therefore, investors have to file individual law suits.
However, tremendous economies of scale can be achieved in the due diligence necessary and/or helpful to litigate a case. For example, investors can collectively hire one law firm and/or experts to gather the factual evidence to be used in the case and share the expense accordingly. Similarly, they can collect and share research and knowledge among themselves. Also, not to be underestimated is the leverage groups of investors gain on the developer, RERA/Land Department, Courts and the like. Their collective voice is much louder and, therefore, harder to ignore. Furthermore, the safety in numbers principle encourages greater number of people to come together. Finally, investor groups take teeth out of developers’ attempt to set individual investor apart from all of the other investors as being the only one in default.
Another benefit of investors coming together is that certain judicial forums allow consolidation of claimants and claims. For example, Dubai International Arbitration Center (DIAC) and Dubai International Financial Center (DIFC) allow for class action suits. Therefore, those investors whose contracts provide for either arbitration or DIFC Court will have an additional benefit in joining forces.
A: Collective efforts by investors provide an enormous cost benefit. First, as far as legal and expert fees are concerned, they can share the expense. Second, any costs incurred in gathering due diligence necessary to litigate a case can be also split across the board. Even bigger cost benefit could be achieved if, because of their collective force, investors work out a settlement with the developer without going to court.
A: This is a complicated issue insofar as bankruptcy laws, while in existence, have rarely been tested. But theoretically, once a developer files for bankruptcy, a Court would cease all of his assets and distribute among the developer’s creditors. The creditors, however, would have to be prioritized. Which creditors get priority and how exactly the remaining assets are to be distributed is a very involved and drawn out process. The next several years will shed more light as to how such cases are to be resolved.
A: No, this has not been done before. And since class actions are not allowed under the UAE law, it is unlikely that a court would consolidate multiple cases into one, let alone from one court to another. If anything, Dubai Court is beginning to insist that investors file separate cases for every unit, even if there is only one agreement covering multiple units.
A: Investors can file a criminal case against a developer on the bases that it has not started a project and/or opened an escrow account, but only if the reason for developer’s default is criminal in nature and there is evidence to prove it on its face.
Misrepresentation and cheating are some examples of criminal acts under the U.A.E. Civil Code. Similarly, under Dubai Law 8 (Escrow Law), criminal sanctions will be imposed where a developer either: 1) “knowingly offers to sell units in bogus property development” or 2) “embezzles, uses or squanders payments delivered to him for the purposes of construction of property developments, and misappropriates such sums.”
For a case to be considered criminal, however, there has to be undisputed or clear evidence to that effect, sufficient to convince the public prosecutor. Thus, for example, if there is a written statement from a developer himself admitting that he had never had any right to the property, but yet represented to the public otherwise, such written evidence may be sufficient.
More often than not, however, such evidence does not exist, at least at the outset. Instead, further investigations must be conducted. This often arises in cases where a contract is at issue, therefore necessitating contract interpretation. In such cases, a public prosecutor will transfer the case to the Civil Court. At that point, the Civil Court will lodge an investigation, often by hiring an expert, to determine the nature of the claim. If at any point in the process, the Court finds that a developer’s conduct was of a criminal nature, it will transfer the case back to the prosecutor.
Today many investors try to file criminal cases first, mainly to use as leverage. Increasingly, however, public prosecutor transfers such cases to the Civil Court. At that point, investors have to start from ground zero again.